Partial Exemption Issue Addressed by Tax Court of NJ

by: Anthony F. Della Pelle
28 Jun 2016

In a recently published opinion, the Tax Court of New Jersey addressed the applicability of the partial exemption statute.  In Savage Mills Enterprises, LLC v. Bor. of Little Silver, the plaintiff argued that it was entitled to a partial exemption on a portion of its property that was subject to a 99-year ground lease to a non-profit entity.  The Borough countered that the plaintiff lacked standing to claim the exemption, and even assuming plaintiff had standing, a partial exemption should not be granted because the plaintiff (lessor) was a for-profit entity.

The subject property which consisted of one building and one lot was first acquired by the Women’s Exchange of Monmouth County (“Exchange”) in 1956.  The Exchange had been registered as a non-profit corporation since 1949, and the subject property obtained a County Board judgment for an exemption in 1956.  The property changed hands in 1985 when Talbots, Inc., a for-profit corporation, purchased the subject property and an adjacent lot.  Talbots acquired the Exchange building for its own use and constructed a smaller building for the use of the Exchange.  At some point, the two lots were merged to become a single lot, which consisted of both the Talbots building and the Exchange building.  Talbots granted all ownership rights of the smaller building to the Exchange and entered into a 99-year ground lease agreement whereby Talbots leased the land for $1 per year.  In 2001, Talbots sold the property to plaintiff subject to the 99-year ground lease with the Exchange.

The Tax Court deemed that plaintiff had standing to challenge the assessment of the property as well as to claim an exemption by virtue of its fee ownership.  However, the court concluded that plaintiff was not entitled to the grant of a partial exemption.  Among other relevant factors, the primary reason for the denial was that the partial exemption statute was clearly inapplicable in the instant matter.  Despite the 99-year ground lease by a non-profit, the plain language of the statue grants partial exemption only when the lessor (landlord) is a tax-exempt entity and the lessee/tenant is a for-profit lessor.  Therefore, the court dismissed plaintiff’s count as to a partial exemption but the case may proceed with respect to the valuation of the property.

A copy of the Tax Court’s published opinion in Savage Mills Enterprises, LLC can be read here.